Wolverine World Wide, Inc. (WWW) Q1 2021 Earnings Report, Transcript and Summary

Greetings, and welcome to Wolverine Worldwide, Inc. First Quarter Fiscal 2021 Results Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce, Brett Parent, Vice President of Investor Relations and Corporate Strategy. Thank you. You may begin.

Good morning, and welcome to our first quarter 2021 conference call. On the call today are Blake Krueger, our Chairman and Chief Executive Officer; Brendan Hoffman, our President; and Mike Stornant, our Senior Vice President and Chief Financial Officer. Earlier this morning, we announced our financial results for the first quarter 2021. The release is available on many news sites and can be viewed on our corporate website at wolverineworldwide.com. If you would prefer to have a copy of the news release sent to you directly, please call Allison Malkin at 203-682-8225. This morning’s press release and comments made during today’s earnings call include non-GAAP disclosures, which adjusts, for example, for the impact of environmental and other related costs, net of cost recoveries, costs related to the COVID-19 pandemic, including air freight costs, credit loss expenses, severance expenses, and other related costs and foreign exchange rate changes. These disclosures were reconciled and attached tables within the body of the release. I’d also like to remind you that statements describing the Company’s expectations, plans, predictions and projections, such as those regarding the Company’s outlook for fiscal year 2021 made during today’s conference call are forward-looking statements under U.S. securities laws. As a result, we must caution you that there are a number of factors that could cause actual results to differ materially from those described in the forward-looking statements. These important risk factors are identified in the Company’s SEC filings and in our press releases. With that being said, I’d now like to turn the call over to Blake Krueger.

Thanks, Brett. Good morning, everyone, and thanks for joining us. I hope everyone on the call is safe and well. Earlier this morning, we reported first quarter revenue of approximately $511 million and adjusted earnings per share of $0.40, a strong start to the year. E-commerce led the way growing 84% during the quarter as our global digital continued to deliver results. Our two largest brands exceeded expectations with Merrell up nearly 25% year-over-year, and Saucony, up nearly 60% in the quarter. Both brands easily beat their 2019 Q1 revenue levels were Saucony up over 75% versus 2019. The company’s international business was up 40% with every region growing over 35%. Our DTC channels are outpacing the market and our wholesale order book is very healthy. As we looked at the rest of the year, demand for our brands is very strong and we’ve raised our full year guidance on the strength of this demand and robust outlook. For today’s call, I’ll start by providing some additional insight on our Q1 performance. And then Mike Stornant will detail our financial results and update you on our financial outlook for the year. Finally, Brendan Hoffman will share the latest on our strategic growth priority before I conclude. In the first quarter, the Wolverine Michigan Group revenue was up 20.1% on a reported basis and up 18.2% on a constant currency basis. The Wolverine Boston Group revenue was up 10.3% on a reported basis and up 8.2% on a constant currency basis. Let me now focus on key brand performance starting with Saucony. Saucony grew revenue nearly 60% and expanded operating margin nearly 800 basis points in Q1. A great start to what we anticipate will be a spectacular year for the brand. All regions delivered strong growth led by North America and EMA. Saucony.com revenue increased by over 150% driven by compelling digital storytelling and impactful product launches. Product design and innovation remain at the core of Saucony’s growth momentum, delivering both superior technical product and trend-right lifestyle collections to the global marketplace. The brands’ road running category nearly doubled in Q1 with the launch of new models for several of its biggest product franchises. The new Guide 14 and Conveyor 12 drove significant growth with the guide more than doubling year-over-year. New colors and collection packs also drove excellent growth and freshness for the innovative Endorphin series. Saucony also grew its trail running business with the launch of the Peregrine 11, which received the coveted Runner’s World Editor’s Choice award. New product launches are fueling momentum and the brands technical product category with existing runners and with the many new enthusiasts to the sport. Saucony Originals, the brand’s heritage lifestyle sneaker business also grew double digits in Q1. The brand continues to lever its Italian product design and marketing hub to build on its pinnacle positioning and success in Europe with elevated trend-right product. The new Jazz Court, a sneaker made with 100% natural materials and zero plastic launched at the end of Q1 driving substantial both in social media and immediately becoming the brands top selling product on saucony.com. Looking ahead, Saucony will continue at steady introduction of new product launches both the new Ride 14 and Freedom 4 launched within the last few weeks and are off to a fast start. Over the next several months, the brand will also rollout the next generation of all three models of the Endorphin collection, the pro, the speed and the shift, which has quickly become one of its largest franchises. The brand will also introduce the new Triumph 19 a follow-up to the award winning predecessor. The momentum in the Saucony business continues to accelerate across both its performance and lifestyle offering. Moving to Merrell. Revenue grew nearly 25% in the quarter. All regions delivered increases led by especially strong performance in EMA. North America grew double digits including DTC with merrell.com up approximately 135% and Merrell stores comping up 30%. Merrell kicked off its Future 40 campaign at the start of the quarter, celebrating the brand’s 40th anniversary and amplifying its inclusive commitment to sharing the power of the outdoors with everyone. The brand announced a significant partnership with Big Brothers Big Sisters of America aiming to provide greater accessibility to the outdoors for nearly 200,000 youth. Merrell continues to focus on cultivating as well established product franchises, as well as delivering innovation across new product introduction. In Q1 performance footwear grew by nearly 30% as the brand continue to do advance its vision of faster and lighter footwear for the trail. Building on the unmatched success of the world’s number one hiker, the Moab, Merrell launched the all new Moab Speed and Moab Light collections, quickly exceeding sell through expectations including selling out on merrell.com and helping to drive very strong double-digit growth for the Moab franchise overall. The Antora 2 and Nova 2 trail runners also continued to perform exceptionally well in the quarter. Merrell has a steady stream of new performance offerings scheduled for the remainder of the year. Merrell;s lifestyle business grew approximately 20% in the quarter driven by the growth of the classic Jungle Moc and newer Hydro Moc, which more than tripled year-over-year. The brand plans to continue to leverage the easy on-off trend throughout 2021 with new products in the Hydro Moc, Hut Moc and Jungle Moc franchises. Merrell is well-positioned with both its outdoor performance and lifestyle businesses and we expect the brand’s growth will continue to accelerate going forward. Our work business, which represented almost 20% of our revenue in Q1, also delivered significant growth led by Wolverine up nearly 30% and Cat Footwear up over 30% with strong contributions from a couple of our smaller brands. We are the market share leader in the U.S. work boot category, which is currently trending with consumers and it’s been an important consistent performer for the company over time. We expect growth in this category to accelerate in Q2. Turning now to Sperry. Revenue was down approximately 10% in Q1, a continued sequential improvement compared to prior quarters, despite more than $10 million of expected revenue, which is led into Q2. During the quarter, sperry.com was up 40% and Sperry stores grew more than 20%. The brands full price business remains very healthy with gross margin expanding nearly 500 basis points in Q1. Looking ahead, Sperry is back on the growth path for the remainder of the year. Sperry possesses unique elasticity across genders, product categories, and price points. It’s new float collection of fun and affordable injected version of the boat shoe for younger consumers launched at the end of the quarter and quickly became sperry.com’s best-selling product introduction in several years. The brand expects to build on the success of the float throughout the year with seasonal drops, including the [indiscernible] Float collection this fall. Sperry also plans to capitalize on the easy on-off trend with the launch of the new Moc-Sider collection later this summer, and to drive energy through several product capsules, leveraging fashion, entertainment and pop culture icon, including collaborations with John Legend, Rebecca Minkoff, and the Netflix hit series, Outer Banks, Good Humor, Popsicle Ice-cream and Rowing Blazers. Before Brendan and I share some additional insight regarding our strategic growth priorities, I’m going to hand it off to Mike to review the first quarter financial results in more detail. Mike?

Thanks, Blake, and thanks to all of you for joining us. Let me start by providing additional detail on the Company’s first quarter performance, and then some insight on our improved outlook for 2021. First quarter revenue of approximately $511million represents growth of 16% compared to last year. As Blake pointed out, most elements of our global growth agenda delivered excellent year-over-year growth on the strength of expanding digital platforms and innovative product offerings. This strong growth performance was achieved despite a meaningful shift of customer shipments into the second quarter. Adjusted gross margin improved 290 basis points versus the prior year to 44.3%, due to our continued e-commerce expansion and favorable wholesale product mix. Adjusted selling, general and administrative expenses of $174.4 million in the quarter or about $23 million more than last year, primarily due to the higher mix of DTC revenue, $8 million of additional investment in digital e-commerce marketing and more normalized incentive compensation costs. Q1 adjusted operating margin was 10.2%, an improvement of 330 basis points over last year as a result of healthy operating leverage. Net interest expense was up $1.9 million and the effective tax rate was 16%. Adjusted diluted earnings per share were $0.40 compared to $0.28 in the prior year. Reported diluted earnings per share were $0.45 versus $0.16 last year and reflect a partial settlement of certain insurance claims related to our ongoing legacy litigation, offset by legal defense costs and specific COVID related costs. Let me now shift to the balance sheet. At the end of the quarter, inventory was down approximately 21% year-over-year. Our global sourcing team continues to adjust to the supply chain headwinds impacting our industry. Our inventory position has improved nicely in the second quarter, allowing us to fill nearly all of the orders that slipped from Q1 into Q2. In Q1, we generated $26.3 million of cash flow from operating activities. The company finished the quarter with $506 million less debt compared to the prior year and total liquidity of approximately $1.2 billion, including $365 million of cash on hand and nearly $800 million of revolver capacity. Our bank defined leverage ratio continued to improve, ending the quarter at a low 1.5 times. I will now provide details on our improved outlook for 2021. As we have shared the trends in our business remained very encouraging with revenue assumptions improving since we offered our annual guidance in February. Our wholesale order book remained strong. Our D2C business is performing well. International regions have returned to strong growth and our inventory position continues to improve. All of this provides us with a heightened level of confidence as we manage the business and invest in future growth. As a result, the company now expects fiscal 2021 revenue in the range of $2.24 billion to $2.3 billion. Growth of 25% to 28% compared to the prior year. At the high end of the range, this is a raise of $50 million from our original outlook in nicely exceeds 2019 revenue. We now expect reported diluted earnings per share in the range of $1.70 to $1.85 and adjusted diluted earnings per share in the range of $1.95 to $2.10. In the face of unpredictable near-term supply chain delays, the company will continue to invest in airfreight to ensure our ability to service the very strong demand we are seeing in the business. These COVID-19 related airfreight costs above normal levels are included in our updated guidance and will be adjusted from our reported results for the remainder of the year. The company is in an enviable position to invest a meaningful growth for 2021 and to continue to drive momentum in our brands. Before handing it over to Brendan, I would like to briefly thank our team, which continues to adapt to the fast changing environment around us, while delivering excellent results for our shareholders. With that, I’m going to hand it over to Brendan to share additional insight on our strategic growth drivers. Brendan?

Thanks, Mike. As we emerged from the pandemic, the power and relevance of our brands is evident as we execute our global growth agenda across the portfolio. With roughly two-thirds of our business in running outdoor and work, our brands are well positioned in the lifestyle and performance oriented product categories favored by consumers and macro trends. In addition to the unique positioning of our brand portfolio, our global growth agenda is driving strong momentum through three key pillars. First, the brands new product and marketing stories are resonating well with consumers, including Sperry’s Float, Merrell’s Moab Speed and Moab Flight, and Saucony’s Guide 14 new Endorphin Collections and several other new launches. Our brands are focused on developing big, innovative and impactful product collections based on consumer insights, trend Intel and testing. And recent investments in our advanced concepts and innovation center of excellence are proving invaluable. Second, our ongoing investments in digital capabilities continues to fuel e-commerce growth, which is exceeding our expectations at this early stage in the year as we track towards our bold revenue goal of $500 million through our brands.com in 2021. In Q1, we leveraged increased digital marketing investments to drive more traffic, richer digital content and storytelling to engage consumers, better merchandising to optimize conversion and additional testing and learning to improve site user experiences. These assets and investments are also helping drive the online business of our global distribution partners and wholesale customers. In the coming months, we anticipate integrating and launching several new innovations and technologies, including a Merrell mobile app. We are excited about the substantial runway that remains for our digital business. Finally, our international business has recovered quickly from last year shutdown, with every region delivering very strong Q1 growth. As Blake mentioned, our Saucony Italy business and its product design and marketing hub are helping drive upper tier distribution for our fastest growing brand. Overall EMEA continues to outperform and the investments in our Merrell and Saucony JV targeting a significant opportunity for our two biggest brands are beginning to pay dividends. Our brands are well aligned to today’s marketplace and consumer trends and our global growth agenda is fueling our biggest and most profitable growth opportunities. I could not be more excited about 2021 and the future beyond. With that, I will turn it back over to Blake to conclude our remarks. Blake?

Thanks, Brendan. Our strong start to the year is reflective of our intense focus on the consumer and our continued investments in talent, product design and innovation, digital and consumer research and insights. The company drove meaningful growth in Q1, despite the impact from short-term industry to logistic headwinds and we are increasingly optimistic about the year ahead. Vaccination rollouts appear to be tracking well, consumer confidence continues to improve and our demand outlook remains very strong. Our DTC business is performing well and our wholesale order book continues to provide good visibility to accelerated growth for the year ahead. We are clear on our strategic priorities and enthused about the opportunities in front of us. The company’s strong position is a testament to our team’s tremendous vigilant focus and hard work over the last 15 months. Throughout this period, we focused on managing our brands for the post COVID world and continued to invest. I’d like to close by thanking our team members for all of their efforts, enabling us to start fast in 2021, which I believe will prove to be a breakthrough year for the company. With that, I’ll now turn the call back over to the operator. Operator?

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is comes from the line of Jonathan Komp with Baird. Please proceed with your question.

Yes. Thank you, good morning. First question I had, I want to ask when you look at the roughly $50 million increase in the full year revenue outlook. Can you just give a little more color, the source of the upside thinking across the brands. And then as you look forward, both in the second quarter giving better inventory availability, but also in the back half, given the ability to chase demand, how you’re thinking about the flow in terms of revenue growth as you look forward here.

Jonathan, yes, I would say that the upside for the year is pretty broad based. It’s a cross to all of our outdoor brands, our work brands, Saucony and the running category. We expect Sperry return to growth for the rest of the year. Obviously, our e-commerce business is performing extremely well, but the online businesses of our wholesale customers are also performing extremely well. And then we continue to see momentum across international regions. It’s a bit mixed, right? There’s still some countries that are locked down a little bit, but the vaccines are working and economies are starting to open up. And I think our Q1 performance was just a reflective our broad-based upside for the entire year. So it’s not a single brand. It’s not a single channel. It’s not a single geographic region. It’s really pretty broad based. And then your second part of your question…

The revenue flow by quarter, I mean, we saw a meaningful shift in revenue from Q1 to Q2, just in terms of some of these supply chain challenges that we saw that we would expect each quarter here to see a sequential kind of improvement, in terms of year-over-year of growth, for sure, but also even as we kind of consider performance against 2019 as a baseline too. So as much as it’s broad based across the portfolio, as Blake mentioned, I think we’ll see a similar sort of benefit in terms of each quarter getting up seeing some upside each of the quarters ahead of us.

Okay. Just, just to clarify, so revenue versus 2019 should improve year-over-year compared to 2019 should improve going forward, including second quarter. It sounds like…

Right. We were down about 2.5%. We were about 2.5% down in Q1. So start to see that each quarter.

Okay. And would you expect Q2 to be up versus 2019 or just less negative?

No, we’re not given that specific kind of direction on the quarter, other than kind of to say that we see a improving a bit versus how we performed in Q1.

Okay, great. And then Mike one follow-up question on the outlook. I know you didn’t raise the outlook for net earnings on a GAAP basis. Is that entirely because of the airfreight? And maybe comment on the incremental marketing, if that’s a part of it. And is a related question, just any commentary on the profitability on the e-commerce business given the strength you’re seeing on the top line. Thank you.

Sure. Yes. I’ll start with the last question. Our profitability on e-comm has been really strong. We’ve been able to see some nice leverage. We talked about 84% growth in the first quarter, but even beyond that really strong leverage on the earnings side year-over-year and even against our plan. So that continues to be robust.

On the – jump in there, I think one of the things we’re seeing with Matt Blonder, as our new head of digital, just bringing new techniques and very quickly able to find ways to leverage our spend dollars. And so as we’re getting the top side revenue we’re seeing a good flow through, and that’s exciting for the balance of the year.

I think your other question, Jon, was about the adjusted results and the adjusting out of air freight. So I want to be clear on that. I mean, first of all, we don’t have any other types of costs considered in there. We have the legacy litigation costs that are going to continue to be in the adjustment like I can have – they have been for the last couple of years. But as it relates to COVID, really what we’re seeing is, the supply chain interruption has really put us in a position to be very much – very aggressive to chase the demand we have and put into our outlook, at least some incremental airfreight that we feel might be necessary to secure that demand. We still have a significant amount of airfreight included in our adjusted guidance. So this is not adjusting out all of the airfreight, but just that we feel as extraordinary or more directly related to the COVID situation. It’s about $15 million to $20 million in that adjustment. And we’ll monitor that. We, obviously, didn’t spend that much in the first quarter and we’re hoping that we won’t need all of that, but at the end of the day wanting to provide for that in this outlook.

Okay. That’s very clear. Thank you.

Thank you. Our next question is comes from the line of Steve Marotta with CL King. Please proceed with your questions.

Good morning, Blake, Brendan and Mike. Mike, just amplifying on one of your last answers, of course, you was mentioned in the commentary, the $10 million is very slipped from Q1 into Q2. What’s the consolidated amount of slippage from Q1 to Q2?

This is Mike, Steve. I think the headwinds were a little stronger than we anticipated three months ago, when we last chatted. We – at that time, you recall, we thought there might be about $10 million, $20 million, that’s about $20 million in total of slippage into Q2 from Q1. That turned out to be about $40 million for the quarter. It wasn’t every brand, but it was kind of concentrated in some of our bigger brands, certainly had an impact, material impact on Sperry. As we look ahead, we see right now about the same amount of slippage from Q2 into Q3. We see the supply chain and some of the logistics issues getting better, as we marks through the year. But we still see about the same level of slippage from Q2 to Q3 as we experienced in Q1 to Q2. And that was about $40 million of top line.

That’s really helpful. Have you seen any regional variation domestically based on either vaccination rates or reopening activities? Anything that gives you a bit of a looking glass into what could be occurring in the balance of the country in six months from now, say.

Actually, we try and follow that pretty closely, but to be honest with you, we saw broad-based demand across regions, almost irrespective of where they were on addressing COVID or vaccines or weather. So weather, it’s any of our outdoor categories, certainly athletic, more athletic, running categories or work category. We saw pretty strong demand. Our future order book is also reflective of kind of that broad-based demand, both internationally and across geographies here in the United States as well.

That’s very helpful. Thanks. I’ll take the balance on my questions offline. Thank you again.

Okay. Thanks, Steve.

Thank you. Our next question is come from the line of Jim Duffy with Stifel. Please proceed with your questions.

Thanks. Good morning. Hope you guys are all doing well.

Good morning, Jim.

I wanted to start on the digital. So the e-commerce growth rate for the quarter implies acceleration in digital in March relative to the quarter-to-date trends, 60% you discussed late February. Has that digital strength continued thus far in the second quarter? And has it been broad-based across brands?

Yes. This is Brendan. I mean, it certainly continued and it is broad-based, which is really exciting to see. Obviously, as we anniversary the pandemic from last year, we knew the comps would change, but right in line with our expectations. And as I mentioned a few minutes ago, really pleased with some of the new techniques and tools we have with Matt Blonder coming on the consulting project, we mentioned last time, I think is already starting to pay dividends with some quick wins. So very pleased with the momentum in our brands.com and Blake mentioned also, also very pleased with what we’re seeing from our wholesale.com as well.

Great. And then, with respect to the international business, can you guys provide an update on the outlook for the international distributor markets? What’s the state of distributor inventories at this point? What’s the timeframe for when you’re expecting the distributor business to turn back on?

Yes, I would say that, it really varies quite a bit country by country. And right now, we’re seeing broad-based lift across international markets and regions, including Latin America, EMA for us. as you know, Jim has been especially strong here over the last couple of years and that strength has continued. Asia Pacific, again, it varies kind of widely by country, but we’re seeing increased demand and it’s across the same macro trends that were experienced here in the United States, the outdoors, more athletic, at home comfy footwear, work footwear. So we have individual countries that are still under some pretty severe lockdowns. They’ve taken a very stringent approach to COVID probably to their credit, but the international business we expect to be very good this year and frankly approach or exceed 2019 levels.

Great. Thank you.

The other part of your question, Jim, was about inventories, too. I think that in line with that improving performance, we’re seeing that the inventories get more back in line and we have a couple of markets, where it’s a little more problematic, but overall just positive outlook there and obviously the international business as part of our improved revenue outlook for the year.

Thanks guys.

Thank you. Our next question is come from the line of Erinn Murphy with Piper Sandler. Please proceed with your question.

Great. Thanks. Good morning. Just a couple of questions, first on the first quarter, how much do you think stimulus benefited your results? And is that continuing in the quarter to date period from a demand perspective. And then how are North American retailers ordering for the second half?

Yes, I would say on the stimulus side, I think it certainly had an impact on consumer soft goods in general, probably on footwear’s as well. As a company, we’re certainly benefiting from our two-thirds – about two-thirds of our portfolio of brands being in some of the hottest categories for the consumers. So we see that strength frankly, and we saw that kind of demand strength with or without the stimulus checks. But when you’re pouring trillions of dollars into an economy, obviously that level of stimulus is going to raise all boats. And then when we look at future demand as well, we see that strong from not just our own DTC side, but we see strong demand from across our wholesale customers for both their online business and traditional brick and mortar business. Probably, the strongest demand I’ve ever seen in my career probably significant increases not just over 2020, but over 2019. So from our standpoint, that gives us pretty good future insight into what to expect and it’s very encouraging.

And I think the other thing to add on to that, Erinn, is some major brands pulling back from wholesalers has provided us a window to take advantage of additional shelf space.

Got it. That’s very helpful. And then just a couple for, Mike, if I may, just going back to your comments on the revenue slippage from, obviously, Q1 to Q2, Q2 to Q3. So if we take that together with the guide raise this morning. Or should I be interpreting that we won’t really see 2019 levels until – in the revenue until Q4 you start to see some of that in Q3. And then I guess that’s a clarification on airfreight, what was it last year? Just so that we have some comparability, since I believe it was included in the results last year. Thanks.

Sure. Yes. On the airfreight question, last year, I think it was about between $7 million and $8 million. And we kind of looked back over the last few years, what’s a normal year for us. And there are always reasons you have to use airfreight as a solution. So that’s a normal level. We’ve got $10 million included in the adjusted results here. So even higher than a normal level. And then the outlook for what might be considered extraordinary or COVID related would be kind of additional $15 million to $20 million range. So that’s really – the reason we’re treating it this way, Erinn, is because we think it’s certainly a more normalized way to look at the cost structure. The question about revenue by quarter, this is not a back half or even, certainly not a Q4 weighted outlook for the business. Blake mentioned similar slippage or at least in our way of planning the business right now, a similar amount of slippage from Q2 into Q3. Even with that, we expect Q2 to be closer to 2019 levels than Q1 was.

Great. Thank you both.

Thank you. Our next questions is comes from the line Mitch Kummetz with Pivotal Research. Please proceed with your questions.

Thanks for taking my questions. I’ve got a few. So Mike, just doing some math on the first quarter, so it sounds like the slippage was $40 million, the plan was $20 million. So is it fair to say that, if I kind of adjust for that, the revenues would have been like $531 million versus $511 million. Is that the right way to think about kind of the moving parts there?

Right. There were some nice at once performance in some of our brands, our e-comm business outperformed our expectations as we mentioned, certainly, as we progress through the quarter. So yes, I think that’s the right way to look at it, Mitch.

Okay. And then on the gross margin, which was up nearly 300 bps year-over-year, could you just quantify some of the bigger puts and takes there? What was the benefit? I assume you had a benefit from channel mix, how much was that? And then any comments about sort of off price close outs this year versus last.

Yes. Very clean inventories help, right? We’re coming in to the year and even the second quarter with extremely low close out positions in our brands. The promotional cadence was very low. I mean, our full price business was solid in the quarter and continues to be the case as demand is kind of outpacing our ability to necessarily chase the business in the first four months of the year. So that’s really helped drive our margins up. And then obviously the mix in e-commerce in our store growth has helped too. So it’s really all of those factors. The mix is probably the biggest component of that, but I think overall as you know, our e-commerce business up 84% is also driving nice leverage on the bottom line as well as an incremental operating margin performance too.

Yes. And then lastly, just any comments on sandals, I mean specifically I’m curious how the Chaco business did. I’d be surprised if the order book was great going into the quarter just given the sandals were a challenge category last year. But I guess what we’re hearing is the sandals have been doing better. And I’m kind of curious how Chaco selling through, so anything that would be helpful. Thanks.

Yes. We would agree with those the general consumer view. Sandals seem to be doing well and water shoes across any number of our outdoor brands. Chaco has strong demand at the moment. Probably frankly, we wish Chaco had some more inventory. If I could have a wish, Chaco would have some more inventory at the present time, but we’ve taken action, corrective action there and our inflows should be improving substantially. So again, we see demand, but not just across sandals or more open footwear, but demand across basically almost any category in outdoor athletic or run.

Okay. Thanks. Good luck.

Thanks.

Thank you. Our next question is comes from line of Jay Sole with UBS. Please proceed with your questions.

Great. Thank you so much. I just want to follow-up on some of the gross margin commentary. You mentioned gross margin is about over 200 bps versus 2019. It’s benefiting from mixed e-commerce and product. If we think about the rest of the year and your guidance for the full year, do you expect that kind of gross margin improvement versus 2019 to continue? Or do you see some of these make some product shifts and price realization benefits that you have is more one-time that sort of normalizes over the rest of the year and then as we into 4Q?

Yes. Our full year outlook is really strong. And I think those tailwinds and benefits are going to continue throughout the year. There’s obviously plenty of information out there about higher input costs and inflationary pressures that are going to start to impact our industry. Higher freight costs have already started to impact our results. And I should mention that included in our Q1 results and our full year outlook, we’ve incorporated much higher ocean freight rates. The air freight that we talked about and some other supply chain related costs that are working against us, but we’re overcoming that just with a cleaner business and higher growing margins. So we expect that to continue as we start to think about next year. We’ll provide more insight into how some of those input costs might start to impact the business. But for now, given the fact that we’ve locked in our pricing and our production for all of this year, we’re confident is that we’re looking out.

Got it. And if I can follow up on that, the SG&A for Q1 was about $15 million versus 2019. You mentioned that the e-commerce business is accretive. So can you just sort of help us understand what’s driving the dollar growth over 2019 and will that trend continue over the rest of the year? Is that something that’s implied in the guidance? Thank you.

It is. And it is mostly related to that shift mix that, that mix shift that we’re talking about with our DTC businesses, both e-comm and stores, right. We operate with a much higher overhead or SG&A component, but they are accretive to the business overall. And so what you’re seeing is at the same time as gross margins expand, you’re seeing an increase in SG&A expenses as a percent of revenue. We’ve also got normalized incentive compensation costs in these numbers. 2019 was relatively low in that regard too. So there’s some impact from that, but most of its shifts in the business and we continue to be really efficient. And with some of the changes we made last year, lowering our travel costs, reducing our costs around global brand conferences and things like that. Those are still in play for 2021. COVID still having an impact on our ability to travel and do those things. So there’s some good benefits coming through from that as well.

Got it. Okay. Thank you so much.

Thank you. Our next question is comes from the line of Sam Poser with Susquehanna. Please proceed with your question.

Well, it’s not Susquehanna anymore, William’s Trading, but good morning, everybody.

Good morning.

I’ve got a couple – I’ve got a handful of questions. Number one, can you give us the specifics on Sperry and Merrell versus 2019 that you gave that for Saucony and can you give us the specifics for Sperry and Merrell for 2019?

Yes, I can give you a little more color on that. Merrell would have been up virtually about double digits against 2019. Sperry would have still been down double digits against 2019 higher than a decrease in Q1. We see that – we see the trend going forward quarters two, three, and four for Sperry improving significantly. And frankly, we see momentum also increasing for Merrell.

Right. And do you foresee the second quarter for the Boston Group, I mean primarily Sperry here? Do you foresee that you can get to in the Boston Group, get to 2019 levels or is that still going to be below?

I don’t have that forecast. We usually don’t – Sam give that level of detail, but I don’t have that forecast in front of me right now. Certainly, it’ll be an improvement over what you saw in Q1.

And Sam, Saucony did extremely well on the first quarter. And Saucony’s outlook for the rest of the year remains really strong. So that’ll help boost the Boston Group and Sperry, we already said, we’ll return to growth for the rest of the year. So yes, we expect an improvement there, certainly as it relates to the shift from Q1 to Q2.

Thank you. And then I’ve got a few more. Did Q1 beat I mean Mitch sort of asked the question, but did Q1 beat your internal plan? How much…

Yes. I think that was a fair question for Mitch and stuff. Yes. Clearly, we had more slippage into Q2 than we anticipated maybe around an incremental $20 million. And so we feel really great about our Q1 performance in our outlook. Obviously, we’re very bullish right now, but Q1, we certainly beat our internal expectations as of versus three months ago.

Given how much slipped, if you had knew that $20 million more would slip you would have thought you wouldn’t have done as well…

Right. And as just one example, Sperry would have had a revenue increase in Q1, but for the slippage. It just happened to be one of those brands that experienced some of the logistic headwinds, unfortunately a little bit more so than some of our other brands as one example. So with the Q1 was the strong start to be year.

Thank you. And then lastly, Mike, what is the tax rates and interest expense you’re anticipating for the full year?

Well, the tax rates still right around 20%, which is consistent with our original guidance and then net interest and other expenses is about $45 million.

Okay, great. Thanks very much. Continued success.

Yes. Thanks, Sam.

Thanks, Sam.

Thank you. Our next question is come from the line of Susan Anderson with B. Riley. Please proceed with your questions.

Hi, good morning. Make up in the quarter and managing through the pandemic. I was wondering if maybe give a little bit more color on what you’re expecting for product causes as we look in the back half in 2022. I guess you’re expecting commodity costs to be up in the back half, or is that more of a 2022 timeframe? And is – are there any plans to raise prices or anything to offset that?

Yes. Let me just give you some background. I think we’ve come at least from my experience through an unbelievable eight or so seasons of price stability or deflation even in the input costs for footwear, certainly rubber, cotton, leather, some other components we see the price increases happening in those areas. We do expect some product cost increases in the logistics, supply chain cost increases, starting to flow through in the back half of the year we plan for that. When we look ahead, we expect product input costs may be for the spring summer 2020 due season to be up low-single digits. It might be a little bit more than that, more than that in fall winter of 2022. Certainly for this year, we factored all of those in to our thinking when it comes to pricing. When it comes to pricing, we’ve been here many times before the industry has been here many times before I would say, obviously we’re going to negotiate with the factories on any increases. We’re going to look for other savings or to offset some of the increases we’re going to – everyone is going to see in the supply chain. We also reengineer product that’s a constant ongoing lever that we’re always working on. And then if we have to, we’re going to take some selective price increases. We frankly think the consumer right now is expecting it. There wasn’t a lot of pushback to the industry, price increases that were pushed through when we had directly tied to tariffs of the last 18 months or so, two years. So we think the consumer is poised to expect some product price increases, but as we approach this, it’s very selective for us. It’s different within each brand. Our brands do on a selective basis, new product versus carry over products. So we have a pretty strategic approach to, but I would anticipate with almost everything else, some price increases coming here, especially starting probably with the spring summer 2022 season and for the remainder of next year.

Okay, great. That’s very helpful. Thanks for all the detail. And then also on the DTC business, just curious how you’re thinking about the rest of the year as we start to go up against much tougher compares are you expecting. That penetration to come down at all or are you expecting it to stay similar to last year? And if we do see kind of a move more back into the stores, and I guess I would mean wholesale, how should we think about that mix shift impact on the margins?

Well, I mean I think as we’ve been saying, we’re quite thrilled with the way our DTC business cadencing throughout the year. I mean really interesting to see as you kind of just described the store business, how it’s bounced back in terms of our own stores with Saucony and Sperry, mostly outlets. Traffic still down, but conversion way up. This is the toughest comp period for e-commerce, obviously because the stores were closed last year. But as I mentioned earlier, we’re really pleased with the way we’re comping against our forecast and see the growth continuing into the back half of the year and the penetration rising as we hit our $500 million overall goal. We also continue to have a robust business with the digital titans, especially Amazon and Zappos, and we see that continuing to increase, so feeling very bullish on the digital channel and our DTC in general.

Okay, great.

And Susan, just to add to that, we expect our DTC business to be over 25% of total revenue this year, which would be up slightly from last year.

Great. Okay. That’s very helpful. Thanks so much. Good luck to rest of the year.

Thank you.

Thank you.

Thank you. Our next question is come from the line of Laurent Vasilescu with Exane BNP. Please proceed with your questions.

Good morning. Thanks for taking my question. And thank you, Mike for all the color on the $40 million slippage into 2Q and then into 3Q. I think the market will understand that there was slippage into 2Q, but I don’t think they necessarily expected that their slippage into 3Q. Is this company specific or industry-wide? And can you provide a little bit more color on where the bottleneck is considering. I think you’ve talked about improved inventory levels. Is it in Asia, West Coast, any other factors we should consider?

Well, I can’t speak for the rest of the industry, but I have a lot of friends scattered around the industry. I would say the logistics delays maybe for some companies’ capacity constraints certainly caused some slippage into quarters. It’s not going to improve back to complete normal overnight. So for us personally, we see that continuing some between Q2 and Q3, but improving throughout the rest of the year. And it was tied to just incredible demand. I mean it could be port congestion, it could be congestion and a lock up at the Chicago rail yards. It could be the lack of trucking internally domestically. So there were any number of COVID-related logistics challenges that not just our industry, but consumer soft goods and other industries faced in Q1. They’re going to face some of that same – some of those same challenges in Q2 and Q3, but it’s going to improve at least our outlook is for to improve considerably as the year progresses.

Okay. That’s helpful. And then switching to Sperry, tying back to one of the Sam’s questions, last quarter, I think it was called out that Sperry would return to double-digit growth, but this time, it has been listening to the call, I don’t – I didn’t hear the word double-digits. So I just want to just double check on. Are we expecting double-digit growth for this year and should it be in the range of 10% to 20%, 20% to 30% or even higher? Any guard rails would be really helpful.

Yeah. We try not to get that specific, but certainly we’re expecting Sperry to have double-digit growth for the year.

Okay.

And a strong Q2 for sure.

Fantastic. Okay. And then with regards to Merrell, last quarter, you did give specific guidance for the first quarter. I think you said it was 20% growth, which I think to your point is on the two-year stack, it’s about 10% growth. Any specifics you can give on Merrell growth for 2Q on a two-year stack?

I’m not really again at that kind of specifics. I would just that Merrell is one of our brands right now. That’s kind of firing on all cylinders, right. Their performance that business is on fire. Their lifestyle business is on fire. Trail running business is trending extremely strong. They’re easy on, easy off, product offerings are responding – the consumers responding well to the product in that macro consumer trend. Certainly, just as one example, their Google search is up a very strong double-digit. So Merrell right now has a lot of tailwind.

And we’re seeing it across all the platforms, our own e-commerce, our wholesalers and globally. So the Blake’s point it’s universal. I think Laurent, you’re asking the right questions about Q2 and then a lot of questions about Q2 come up and we gave some cautious kind of view about some slippage into Q3, but frankly, the demand we have right now for the categories, especially categories that are performing best and really across the business is tremendous for Q2. We still have to be careful about some of these supply chains issues that are unpredictable good or bad. And frankly, in Q1, they were a little worse than we expected. So we’re being a little cautious about that, which is why you’re not hearing us give too much detail about Q2. But I will say the demand in the business for Merrell, Saucony, our work business and really across the brands is incredibly strong. I think Blake mentioned maybe the strongest we’ve seen in quite some time.

That’s great to hear. Thank you very much for all the help.

Thank you. That is all the time we have for today’s call. I would like to turn the call back over to management for any closing remarks.

On behalf of Wolverine Worldwide, I’d like to thank you for joining us today. As a reminder, our conference call replay is available on our website at wolverineworldwide.com. The replay will be available until June 12, 2021. Thank you, and have a good day.

Thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines at this time. Have a great day.